Tom: This morning you are talking about the shake up in telecom, what it means, and what to look out for.
Mellody: This is a big story, Tom. Over the past two years, we have seen the telecom landscape change at a breakneck pace as the industry has tried to react to changes in new technologies, consumer demands, and intense competition from rivals. The latest example of this was AT&T’s announcement last week of a deal that will combine mobile phone service with television service in a first-of-its-kind offering, as they seek to get a head start and carve out a niche that no one else can fill at the moment. Overall, the telecom sector is going through a tumultuous period, and it can benefit us all, as long as we are aware of the opportunities and the risks.
Tom: What is the new package that at&t is now offering?
Mellody: This new deal from AT&T marries its mobile network and television. Under the new plan, customers will get high-def and DVR service for up to four television sets, unlimited talk and text for up to four phones, and 10 gigabytes of shared data for $200 a month, which is about what a family of 4 would use – at least if they aren’t streaming video all the time. All of that comes with a 2-year contract.
Tom: Why are we seeing AT&T offer this?
Mellody: As the battle between the telecom companies heats up, each player is trying to play to their strengths and expand market share. AT&T is trying to exploit their unique position in the market right now. As friend of mine put it, video is the new killer app on mobile devices, and since the AT&T-DirecTv deal went through, the company is now the largest video player in the country.
The company recognizes that they are the only company that has a coast-to-coast mobile network and nationwide cable coverage in your home, and on top of that they offer these services in a seamless package. Verizon is has cellular coverage, but a limited cable footprint. Sprint and T-mobile also offer cell service, but no cable in your home. And Comcast can offer you cable, but no mobile service. AT&T wants to exploit their current position to crush competitors that do not have the same capabilities.
Tom: Does this new plan have a catch?
Mellody: it certainly does! In order to take advantage of this package – one that brings a 25% savings on the value of the services offered – you have to be a new customer. That means that current AT&T and DirecTv customers are not going to be able to take advantage of it. That is a big catch. The second thing that consumers need to know is that that rate offering only lasts for the first 12 months of the plan. It reminds me of the offers from credit card companies offering a lower rate to rollover your balance, and the rates would gradually rise. This is a teaser deal to get you on board. After that, rates will go up. We do not know how much they go up, that remains to be seen, but they go up, so there is some risk there for people switching over.
Tom: Should consumers expect more deals like this? If so, how do we figure out which ones are good?
Mellody: I think you will continue to see new deals coming out of the industry as the players fight it out for market share, revenue and subscribers. We have heard that T-mobile and Dish are talking about a possible merger, which would create a company with similar capabilities as the new AT&T. If that happens, we could see a similar seamless phone-video plan. Outside of that, if AT&T’s plan gains momentum and converts, the pressure will be on competing companies to offer deals and perks to existing customers to keep them in the fold, which will benefit us. In terms of making sure that the benefits of these deals are not just short term, leaving you open to getting hit after an initial honeymoon period, it is critical that you make sure you know what you are getting into. I have said it before on Money Monday – you have to read the fine print – know what your contract says, the length of time involved, and ask about feels, overage charges, and the costs you will incur when it comes to things like new phones. In this period of competition, be willing to call your current company and ask for a better deal to match competitors. There are benefits to be had right now, you just have to take the time to know what is out there, and push back to take advantage of them.
Tom: Thanks for joining us this morning, Mellody.
Mellody: You are welcome, Tom!
Mellody is President of Ariel investments, a Chicago-based money management firm that serves individual investors and retirement plans through its no-load mutual funds and separate accounts. Additionally, she is a regular financial contributor and analyst for CBS News.